The US Treasury on Wednesday sanctioned the Persian Gulf Strait Authority, an entity Iran created to handle passage requests through the Strait of Hormuz, a route carrying about a fifth of global oil supply. The Treasury warned that parties cooperating with the authority may be providing support to, and receiving services from, Iran’s Islamic Revolutionary Guard Corps and could face sanctions. Iran shut the strait after the US and Israel launched war against Iran on 28 February, while the authority last week issued a map restating Tehran’s claims over a broad swathe of waters around the chokepoint.
Oil markets firmed after the measures. WTI rose 1.6% to about $89.80. WTI, or West Texas Intermediate, is a US-sourced light, sweet crude benchmark delivered via the Cushing hub, and its price is shaped by supply and demand as well as sanctions and conflict that disrupt flows. Dollar moves also matter because oil is priced in US currency, while inventory data from the American Petroleum Institute and the Energy Information Agency can shift expectations; their figures are usually close, staying within 1% of each other 75% of the time. OPEC production policy, set by 12 members, and the wider OPEC+ grouping that adds ten non-OPEC countries, can also affect pricing.
Escalating Sanctions and Rising Volatility
The US sanctions on the new Iranian authority are pushing oil prices higher, with WTI now near $90 a barrel. We believe this introduces more uncertainty rather than creating a path to de-escalation in the near term. Implied volatility in oil options, as measured by the OVX index, has surged to near 52-week highs, reflecting the market’s anxiety over the ongoing conflict.
Supply Shock and Trading Strategies Amid Conflict
The core issue remains the closure of the Strait of Hormuz, which has now lasted for three months since the war began on February 28. With roughly 21 million barrels per day of seaborne supply historically passing through the strait, recent EIA data shows global inventories are drawing down much faster than anticipated. This fundamental supply shock is the main driver keeping prices elevated and suggests a strong floor under the market.
We are advising traders to use options to navigate this extreme uncertainty in the coming weeks. The potential for either a sharp military escalation or a sudden ceasefire agreement creates a binary outcome for oil prices. Purchasing call options offers a way to position for a potential spike towards $100, while put options provide protection against a sudden price collapse on news of a breakthrough.
Looking back at historical conflicts in the Persian Gulf provides a useful guide for what to expect. During the Tanker War of the 1980s and the Gulf War in 1990, oil markets experienced prolonged periods of extreme price swings. We expect this pattern to repeat, meaning any trading strategy must be built around managing high volatility rather than picking a specific direction.
